Investor Demand for Cash Flow Deals

Every day, I talk with institutional investors about deals.  Institutional investors have capital which they need to invest. So, what do I hear from these investors?  What are they looking for?

Today, many tell me they want predictable quarterly cash returns.

Some want fixed payments, something in a debt instrument.

Many, however, will accept some variability in the payments. they’ll take some equity risk, to get a better return.

I’m seeing a large and growing universe of these investors.

If you can offer investors a generally predictable cash return, you can get investment capital.

Naturally, institutional investors will ask what could go wrong to diminish their cash return. The better your answer, the stronger the investor demand and the lower your required payments.

Also, if your investment has underlying assets, like real estate or equipment that can be sold to raise capital in a pinch, this also makes your investment more attractive.

So, if you’re raising capital for an investment that generates strong cash flows, consider using those cash flows to pay investors a periodic cash return. 

I recognize that if you pay out the cash flow to investors which you need to reinvest for growth, you’ll have to raise more capital.

The good news is that if you’ve gained a track record for paying investors their periodic cash return as promised, you’ll have no trouble raising capital at attractive terms.

Please contact me to discuss your capital market goals. Thank you.

Dennis McCarthy

Dennis McCarthy

Deal with a Slow Growth World

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

When I posted, “Living with no growth”, I suggested that we rethink some of our widely held assumptions, which are based on continued growth.

At that time, the most common response from viewers was denial, “no growth, not my world”.

And, to be fair, there’ll be pockets of growth, no doubt, but, in general, the global economy is slowing. There’s no denying it.

So, if you run a company facing this slow to no growth environment, how do you respond? 

Specifically, how do you deal with Wall Street when earnings growth is hard to come by?

The first response of many companies is to cut costs.  Many companies, however, are already running lean and mean so there’s not much room to cut costs any more, and some costs, for example, health and workers comp insurance, just keep rising.

The related response, raising prices is probably a non-starter in the face of today’s softening demand and increased competition.

So how do you keep Wall Street happy? Here are a couple more ideas.

One. Many public companies are initiating or increasing their stock buyback programs.

Last month, companies announced $45 billion in new or expanded stock buyback programs.

Two. Initiate or increase a dividend on your stock.  As I reported in my post Offer Yield Securities – What Investors Want”, increasingly, investors look for current yield if there’s slow or no growth.  And you know, with today’s low interest rate environment it doesn’t take much to offer an attractive yield. 

Three.  Your company could increase its financial leverage.  Your company could raise debt to grow or buyback equity. Borrowing rates are at record lows so you may be able to put the money to work efficiently to make this move pay.

Four. Get economies of scale by combining with another synergistic company.

If you can acquire or merge with a company at a reasonable price, you may be able to give your bottom line a boost by eliminating duplicate costs.

So, the message is, once we recognize that our environment has changed, that global growth is slowing, we can focus on practical responses

I can help you to evaluate your options and take the best actions.  Contact me now.

Offer Yield Securities – What Investors Want

dennismccarthy@ariesmgmt.com

(213) 222-8260

This is the second in a series of posts about how a company can best  respond to our current capital markets environment.

Frequently, our clients express their frustration that the equity market is so volatile now that investors seem reluctant to act.  Many investors are unsure whether they’ll get a positive return on their investment.

This has driven many to seek out securities with a yield, maybe interest on debt or a dividend on equity.

Seeing this, we’ve come up with a transaction which responds to investors’ current preferences.

We’ve advised companies to offer their common shareholders a new yield-oriented security in exchange for their common.

We’ve tailored the exchange offers to fit our client’s specific circumstances, there are a number of variations available.

The key is that our clients offer what is in great demand, a yield security, in exchange for what seems less in demand, plain common stock.

We’d be happy to discuss this idea with you to determine whether it works in your situation. 

Please call me or email me.  Thank you.

dennismccarthy@ariesmgmt.com

(213) 222-8260

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